Highlights From Gallup’s No Recovery: An Analysis of Long-Term US Productivity Decline

Last week, Gallup (in cooperation with the US Council of Competitiveness) released an incredibly detailed thirty-year study on the decline of American productivity. While the report is certainly worth reading (you can download the full version here), it’s about 120 pages long–who has the time or patience?

Luckily for you, and for reasons to be touched on herein, I do. It seems unnecessary to say, but nearly everything that follows is extracted from Gallup’s report. Without further ado, here’s a quick summary of No Recovery: An Analysis of Long-Term US Productivity Decline.

First, a note: Quality-to-cost ratio

Gallup helpfully identifies the engine of economic growth as an increase in the ratio of quality to cost. In other words, growth is evidenced by increased efficiency: falling real costs or increasing quality.

To the economically inclined, this may seem obvious. But it’s inconsistent with lots of contemporary policy and thus a worthwhile observation. Indeed, Gallup puts the cost of increased federal regulation at $250 billion annually since 1981.

GDP Growth Slowdown

It’s no secret that America’s recovery from the Great Recession has been anemic. Between 2007 and 2015, GDP growth was about 1% annually. If that rate continues, Gallup estimates that by 2050 GDP per capita (currently $56,000) will only reach $79,000 by 2050. For some perspective on how much the rate of growth matters, Gallup offers that a growth rate of 1.7% over the same period would result in a GDP per capita of $101,000.

Not everyone is a fan of studying GDP; its omission of unpaid labor caused feminist economist Marilyn Waring to claim it was invented by men to “keep women in their place.” However, Gallup argues, it’s rather reliable as a proxy for human well-being as it correlates with various quality of life metrics.

Similarly, GDP growth is important in that it indicates the degree to which an economy is becoming more efficient and effective at creating value. Lack of growth indicates an economy that is not becoming more efficient, either through failure to increase the quality of goods and services available or a expanding costs without corresponding increases in quality.

Gallup attributes the slowdown in growth to dropping quality-to-cost ratios in three key sectors of the American economy–healthcare, housing, and education–which account for over 50% of inflation over the past 30 years. Without the inflation incurred in these sectors, real GDP growth would have been 3.9% between 1980 and 2015.

Healthcare

The United States devotes “more resources to healthcare than any other country” but receives worse outcomes than most OECD nations, the report details. By Gallup’s measurements, health outcomes have stagnated for Americans, particularly those of working age, since 1980.

Since then, Gallup estimates that 24% of inflation has been caused by increasing healthcare costs. The cost of healthcare has increased 4.8 times since 1980, while the cost of health insurance multiplied by 8.7.

For all our increased spending, Americans are seeing practically no returns. Maternal mortality increased from 12 to 28 deaths per 100,000 births (1990-2014). The age-adjusted rate of obesity, which causes and additional $170 billion in health spending, increased from 15% to 35% between 1976 and 2011. Age-adjusted rates of diabetes increased from 3.5% to 6.6% from 1980 to 2014.

Not only are Americans getting sicker, but their illnesses seem to be getting more severe. Illness or disability is now the leading reason Americans are out of the labor force. Those reporting a disability were more likely to have been out of the labor force within the past two years than in the past (78% 1988-1990 compared to 84.5% 2014-2015). Those out of the labor force are more often reporting pain than in the past and are more likely to be taking opioids.

Poor health outcomes and rising costs are having direct and indirect effects on the labor market.

The rising cost of healthcare, which is increasingly obtained through employers, has created a drag on employment, Gallup argues. Healthcare costs are acting as barriers to entry, preventing companies from opening, hiring, or expanding and holding down wages. Healthcare now composes 8.1% of employee compensation, up from 4.5% in 1980.

The study identifies some of the primary causes of healthcare inflation over the past four decades.

First, idiosyncratic private practices consume a lot of money and time. Americans spend 4.6 times as much on healthcare administration costs as the OECD average.

Federal and state regulations play a huge role in cost inflation as well. In many cases, state laws prohibit nurses from carrying out the functions of general physicians, even though evidence suggests that patients treated by nurses have equal or better outcomes than patients seen by general physicians. According to Gallup, allowing nurses full practice would save hundreds of billions of dollars. Intense regulations depress nursing hours and inflate physicians’ salaries to levels far beyond what is found in other OECD countries.

State-sanctioned hospital monopolies are also listed as a cause of healthcare inflation. According to the study, lack of competition in healthcare wastes $55 billion annually.

The study suggested a lack of business training on part of physicians as a potential cause for weak productivity gains in healthcare. Perversely, Gallup reports that 68% of healthcare innovations cost more than previous methods of treatment–even accounting for health outcomes. (As an aside, I would speculate that a fee-for-service model does little in the way of incentivizing innovative and cost-saving practices).

What not to blame: Access to care, illegal drug abuse, changing demographics, and diet and exercise patterns do not significantly account for the decline in healthcare productivity or outcomes, according to the report. However, prescription opioid use is indicated as a factor.

Housing

Gallup finds that housing has become 3.5 times more expensive since 1980. These costs have affected renters and owners, though to different degrees. In 2014, rent made up 28% of the average family’s income, compared with 19% in 1980. Home-owning costs have also increased over the same period: up to 16% of income from 12%.

Despite the increase in costs, quality has lagged. Americans are living in older homes that are farther from work and smaller in size than they were in 1980. Home ownership is at its lowest rate since 1967.

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Tables: obviating a thousand words at a time. Taken from No Recovery: An Analysis of Long-Term US Productivity Decline

The causes of housing inflation are mostly attributable to local land-use regulations.

In relatively competitive markets, supply will normally increase to meet demand, causing prices to stabilize. What is frequently happening in the United States is that as housing and rent prices increase, developers find themselves “regulated out of the market.” This leads to a strange correlation between high price and low supply growth in counties.

The report found that from 2000 to 2010 housing density actually fell in major metropolitan areas. Meanwhile, prices have soared; the median home value in Palo Alto, where only 27% of land is zoned for residential use, is $1 million. The problem is compounded by regulatory distaste for multi-family developments. This kind of market restriction is common, according to Gallup.

The main takeaway from this is that local political forces are chiefly responsible for housing inflation through the use of zoning policies. Such policy is a form of rent seeking that increases housing values for some at the expense of those who would hypothetically live in aggressively zoned areas without actually improving housing quality.

Education

Per pupil public spending has increased from $6,200 in 1980 to $10,800 in 2013, adjusting for inflation. Yet, like healthcare and housing, increases of per unit costs in education have greatly outpaced productivity gains.

The statistics are damning: Literacy rates among 17-year-old Americans peaked in 1971. Standardized testing reveals that math scores peaked in 1986. Test scores show a lack of improvement in math, science, and reading, in which respectively 25%, 22%, and 37% of American students are proficient.

This kind of stagnation isn’t typical among other nations; the United States showed much smaller levels of inter-generational improvement than other OECD nations. Up until about 1975, Americans were scoring significantly higher in math and literacy than Americans born before them. Since 1975, scores have plateaued, even adjusting for race and foreign-born status of students. As the study states, this implicates the entire US school system.

Higher education seems no more productive. While the cost of higher education has increased by a factor of 11 since 1980, literacy and math scores for bachelors degree holders peaked among those born in the the 1970s. United States college graduates rank 23rd among OECD countries in numeracy.

Dipping quality-to-cost ratio in education drags down employment, incomes, and GDP. Companies in America are forced to delay projects or turn to foreign workers to meet growing demand for high-skill employment. This is particularly pronounced in the sciences; 48% of scientists with a graduate degree are foreign-born. More indirectly, low educational attainment is shown to correlate with low health outcomes.

A primary cause of our inefficient education system is that teaching has become an unattractive profession.

Ironically, a lot of this has to do with the standardized tests that let us know how poorly our education system is doing. Gallup cites surveys indicating 83% of teachers believe students spend too much time on testing and New York Times reports that many schools spend an average of 60 to 80 days out of the school year preparing for tests. The study suggests there may be an unnecessary amount of testing caused by special interests; between 2009 and 2014, four standardized testing companies spent $20 million lobbying policymakers.

Teachers also cite a lack of autonomy and incentive. Salaries start and stay low, with no accountability system to reward effective teachers. Similarly, teachers’ unions have tied pay to seniority, rather than performance.

Another explanation provided by the study: teachers in the United States are less likely to have been good students than teachers in countries that do better on testing.

Where higher education is concerned, federal subsidies are more often flowing to under-performing schools where students are less likely to graduate and more likely to become delinquent borrowers. This lack of discrimination ends up increasing national student debt and funneling resources to inefficient educators.

Unsurprisingly, the explosion of non-teaching staff at colleges is also implicated by the study. Between 1988 and 2012, the ratio of faculty to students grew from 23:100 to 31:100 without any measurable increase in quality.

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United States policy is in serious need of reform, argues the report. The writers state that improving market functionality and competitiveness should take precedence in forthcoming economic debates. More specific policy recommendations from Gallup are on the way.

In the meantime, anyone interested should really take a look at the full publication. It’s important and absolutely first class, plus it contains lots of awesome graphs that I didn’t include here.

The Lost Art of Debate

This recent election cycle has been nothing if not revelatory. Who would have guessed that Bernie Sanders and Donald Trump were the harbingers of a populist revolt that would leave both major parties in the throes of identity crisis?

But enough punditry; those are considerations for the political class. While they meet behind closed doors in Washington, We the People should revisit the ancient and sacred art of civil debate and contemplate why so many of us abandoned it.

This isn’t to say that people haven’t fought for what they believe in. Indeed, part of the problem is that many of us confuse fighting with debate. Debate requires patience, empathy, clarity, and above all, an open mind. Fighting requires very little beyond the hubris to mistake conviction for virtue (for examples, visit Facebook, YouTube, or twitter).

To debate someone you have to respect them enough to let them finish a sentence. You have to be willing to let them construct an argument against you under the assumption that you will later be able to successfully challenge its premise. You must also open yourself to the idea that there are realistic limits to your own knowledge and perception.

The bravest thing you can do is give someone time to speak against you. Conversely, resorting to ad hominem, laying waste to innumerable straw men, and shutting out dissent are the strategies of cowards: the easy way out.

Too often these days we lack the bravery to face our ideological opponents. We go online and read news sources that confirm our opinions; we shame our detractors into silence; we withdraw to be with our own kind. Consider that this year over 1,700 counties voted with margins 20 points different than the national vote while only around 250 voted within 5 points of the national vote. At the Washington Post, Phillip Bump writes that two thirds of Clinton and Trump supporters had few to no friends supporting the other candidate. The lukewarm comfort of our echo chambers keeps us content to ignore that ours is a big world.

Nowhere has this tendency become as evident as on college campuses, which have sadly become ideologically homogeneous to the point of enfeeblement. Recently, colleges have developed a disturbing trend of turning away controversial speakers at the request of students. Between 2015 and 2016, the Foundation for Individual Rights in Education counts 52 attempts to disinvite speakers based on student opposition, of which 24 were successful.

Following the election of Donald Trump, there was a widespread and embarrassing exhibition of incredulity. The dangers and consequences of the echo chamber were made apparent.

Rather than take this as an opportunity for introspection, some have chosen to double down. More than a few colleges granted accommodations to their students, ranging from postponing exams to providing “breathing spaces”—rooms containing pets and coloring books—to students who felt stressed by the results. Many smart people took to social media to excoriate others they’d never met, or tried to understand. Is it any wonder that those who have shied from ideological opposition wither in its face?

A closed mind cannot aspire to persuasion. A theory is not made stronger without facing resistance. If you want people to listen to you, as presumably we all do, you should be willing to hear them out. That means reading news from sources that make you uncomfortable and trying to engage people who aren’t like you without writing them off as bigots. It means reaffirming the value of unpopular speech, denouncing censorship, and moving past identity politics. It won’t be easy, but it will be worth it.

For the good of our society, it’s time to revive the art of debate and put aside the intellectual lethargy that precludes it.

The Political Impoverishment of America

We’re coming off one hell of a Friday. Released material of both the Democratic and Republican nominees confirms the fears of their respective less-than-fervent supporters: namely that Clinton is an opportunistic liar and that Trump exhibits a moral deficiency that should and will render him unelectable.

A third, fourth, or fifth voice in tomorrow’s debate would be pretty nice right about now.

Unfortunately for We the People, that’s not really up to us. The decision falls solely within the purview of the Commission on Presidential Debates: a non-profit run by the Democratic and Republican parties–because why not? The CPD sets a threshold of 15% that a prospective candidate must reach in 5 national polls, which are conducted in part by some heavily partisan organizations and may not include third party candidates’ names at all.

Somehow, in the same country where we have more types of shoes and deodorant than Bernie Sanders can shake a stick at, we’re left with a binary choice (in practical terms) when it comes to electing a national leader.

For those of us who equate choice with wealth, it’s no shock that severe barriers to entry have left us politically poorer than we should be. Most Americans, after all, are not members of either major party and probably hold an eclectic set of views. Neither candidate is viewed favorably by the public.

But alas, this is life under political duopoly where the players are also the referees. It’s understandable that the two major parties wouldn’t be excited about the prospect of ceding some of their influence. What’s less understandable is the willingness of American “intelligentsia” to play along.

The New York Times has gone into full attack mode to dissuade voters from seeking alternative presidential options. From the opinion section, Paul Krugman and Charles Blow submit missives that malign voters whose opinions diverge from their own (infuriatingly, Krugman’s column, entitled “Vote as if It Matters”, tells voters that “nobody cares” if they use their votes in protest).

Less forgivably, writing in the Politics section can be found using discredited scare tactics to frighten voters away from making their own choices:

And, in what is one of the most difficult barriers for Mrs. Clinton to break through, young people often display little understanding of how a protest vote for a third-party candidate, or not voting at all, can alter the outcome of a close election.

The vast majority of millennials were not old enough to vote in 2000, when Ralph Nader ran as the Green Party nominee and, with the strong backing of young voters, helped cost Vice President Al Gore the presidency.

Hypothesis easily turns to axiom in a feedback loop. Instead of looking inward (300,000 registered Democrats voted for Bush in Florida in 2000), partisans choose to punch down at political minorities (Nader had 90,000 votes in Florida, only 24,000 of which were from registered Democrats) because that absolves them of the responsibility to produce better candidates.

Like any cartel, the political establishment excels at serving itself while being unresponsive to clients (voters). As long as the electorate is willing to swallow the idea that they must choose between the options laid out for them by Democrats and Republicans, that isn’t going to change. The truth is we do have a choice; it’s just a matter of exercising it.

No, Voting Third Party Isn’t a Waste

Given the historically unpopular candidates presented to us, 2016 should be the year Americans are encouraged to expand our political horizons.

Instead, people interested in a non-binary choice this election face a litany of derisions and insistences that their political preferences should take a back seat to a greater mission of ensuring that either Clinton or Trump not take the White House.

Underneath it all is the accusation—outright or implied—that voting for a third party candidate is a waste of time: a selfish, brazen gesture best left for a less pivotal year.

This is a terrible argument. There’s no such thing as wasting your vote if you’re doing what you want with it: it’s yours! Vote for candidate A, B, or C; don’t vote; write in your uncle’s name. It doesn’t matter. The only real way to waste your vote is to let someone else tell you how to use it.

Once you’ve been dutifully informed by some clairvoyant pundit that you’re wasting your vote by using it the way you want to, the dismissal of third party candidates based on their remote chances of victory is never far behind. This is profoundly confused; a vote isn’t a bet. There’s no prize for picking the candidate that ends up winning.

The point of a representative democracy–other than to elect leaders–is to convey national preferences to politicians (does anyone believe Ralph Nader’s relative success as a Green Party candidate had no impact on the Democrats’ current environmental stances?). The best way to do this is for everyone to vote for candidates and ideas that appeal to them. The worst thing voters can do is reward unresponsive parties with loyalty: that only begets more unresponsiveness.

Increased interest in third parties let’s Democrats and Republicans know they’re off track. In that sense, and especially to anyone interested in the integrity and evolution of our political discourse, third parties have an important role as the barometers of American political attitudes, if not yet heavyweight contenders for the presidency.

Remember: only a very small minority of our country has actually voted for Clinton or Trump at this point! There’s no reason for the rest of us, who have actively or passively declared our disinterest in both, to feel pressured to line up behind either of them. Some will, and that’s fine if it’s what they want at the end of the day; in fact, I’m happy they’ve found something they can believe in. But it’s not unreasonable for the rest of us to pursue options that we find more personally appealing.

Pluralism and diversity are, at least ostensibly, integral to the American political experience. I can think of nothing worse for our nation than a fear-driven dichotomy whereby we are encouraged to re-imagine second worst as synonymous with best. If we want to be happy with the results of our electoral process, we should start by being more honest about what we want from politicians. The best way to do that is in the voting booth.

Sanders Supporters: Why Fall in Line?

On June 6, 2016, the New York Times ran this article claiming that Clinton had clinched the nomination the day before the California and five other states head to the polls to vote in the primaries. The article, based on a poll by the Associated Press, claims that Clinton has secured enough superdelegate votes to effectively guarantee her the ticket, regardless of the turnout yesterday. The timing was…serendipitous, shall we say. All in all a fitting end to the Democratic primaries.

Anyone following the election will be familiar with the growing sentiment that our political process has been hijacked by elites. To paraphrase candidates Trump and Sanders: that we have a rigged system. This surprise announcement—that voters in six states have been rendered obsolete by the markedly undemocratic superdelegate system—will surely do nothing to alleviate such disquiet.

I haven’t been shy of critiquing Sanders’ ideas from my little soapbox. He made the economy a cornerstone of his campaign and then displayed approximately zero economic acumen (in my opinion at least–plenty of people find him compelling). But for all of the eye-roll-inducing statements he made over the past year, his campaign has been a breath of fresh air. It brought to light the extent to which establishment Democrats are perceived to have failed the working class (Trump did the same for the Republicans) and underscored that there are big ideological divisions within the Democratic Party.

It also brought a troublesome revelation for many longtime Democratic voters: some of those “Washington insiders” against whom they rallied to the beat of Sanders’ war drum have a “D” prefixed to their state. That disillusionment is sure to haunt the Party as it charges into November under the banner of a candidate under federal investigation for at least the fourth time.

Now Sanders and his supporters will be told (in truth, continue to be told) that it’s time to turn back into a pumpkin and fall in line. My advice to them: don’t.

I won’t go on a diatribe here—Clinton has plenty of merit as a candidate and is certainly “qualified” to be president, to whatever extent one can be qualified for a unique position. But she and her awkward, halting coronation represent everything wrong with American politics: the presumptuous attitude of entitlement; the ethos of a benevolent dictator; the impunity of the well-connected; the fallacy that less terrible is synonymous with good.

In 1964, Malcolm X observed that while Democrats were getting into office on the black vote, black political support was being taken for granted. I’d say the same point applies to any demographic or individual. If a voter is really into Sanders’ ideas, most of which are rooted in some spirit of protectionism, how do they rationalize supporting a pronounced neoliberal like Clinton?

Vote (or don’t vote) for whomever, for whatever reason you find compelling. But Bernie supporters shouldn’t reward a political party that persistently refused to take their candidate seriously out of a sense of obligation to “party unity.”